FAR 3 - M4 PP&E: COST BASIS

Question 1

How to depreciate LHI

Answer 1

over the useful life of the improvts
OR
lease term
whichever is LESSER

Question 2

When to capitalize or expense interest in construction

Answer 2

CApitalize interest DURING construction based on the weighted ave of accum expenditures, as part of cost
** weighted ave of accum exp OR interest incurred
whichever is SMALLER **

Expense - interest Before or After construction

Question 3

Capitalized interest based on weighted ave

Answer 3

PURCHASE
1/1 200 x 12/12
9/1 200 x 4/12

CONSTRUCTION
1/1 expenditure 200 x 4/12 (jan-apr) 66
5/1 exp 600
——
800 x 7/12 (may–nov) 466
12/1 exp 300
——–
1100 x 1/12 (dec) 91

                                 12/12                              623

borrowed 500 x12%
existing debt x10%

500 x 12% = 60
123 x 10% = 12
72

If total # of mos is not full year, example 9 mos = denominator will be 9 mos